When Is a Contract Not a Contract?
There is an old joke that a verbal contract is not worth the paper it is written on. It is true that having an agreement in writing is always preferable to a verbal agreement — but in some cases, even a written contract can turn out not to be worth the paper it is written on.
The law generally considers a contract to be a private matter among the parties who agree to its terms and only steps in when agreement turns into disagreement. Some types of contracts, however, fall into categories that have predefined legal requirements — or prohibitions — and therefore are automatically invalid if they fail to comply with existing laws. Examples include:
- Contracts used in regulated industries, such as insurance and real estate
- Non-compete agreements, which are void under California law except in certain circumstances, such as following the dissolution of a business partnership
- Contracts in which one of the parties is a governmental or public agency, thus making the contract a matter of public interest
- Agreements among businesses that could result in antitrust violations, such as price fixing
- Any contract that involves illegal activities, such as gambling, robbery or sexual offenses
Even if a contract does not violate any specific laws or regulations, it may be ruled invalid if the parties have a dispute that ends up in court. In such cases, the courts rely on certain common law principles to determine whether the agreement should not be enforced, such as:
- Adhesion contracts: An agreement drafted by the party in a more powerful position and presented as take-it-or-leave-it to a party with little or no power to negotiate
- Unconscionable contracts: Agreements with terms that are blatantly unfair to one party
- Exculpatory provisions: Portions of an agreement that unreasonably release a party from liability even if the party acts negligently
If you have a need for any type of agreement — whether business or personal — make sure you have the guidance of an experienced California contracts attorney who can ensure you end up with a solid, enforceable contract.